Yes - Yen currency pair crosses is another whole area that has been played to death the past few years.  Lots of questions about what will happen when interest rates on the Yen do rise - I quess we’ll only know when it happens

We’re way off topic from AAPL here but FWIW i’m seriously considering a long Yen futures trade with plans to hold for then next few years - mostly to hedge my retirement funds that are heavily weighted long US equities.

way, way off topic but as you say FWIW

One can use the low yen borrow by:
1. Borrowing Yen
2. Investing it in Yen dominated Assets

I guess my question is how to borrow yen at Japanese interest rates.

I’m sure there are better informed currency and banking experts that can give you a better answer than I but I’ll take a shot:

I thnk the way to look at is is not how can I borrow Yen but what will Yen interest rates do relative to the rates of the currency base of what I buy with the Yens I borrow.

If I borrow Yens and live in the US - buying stock or other things with US dollars, then the low interest rate on the Yens I borrow is irrelevant if the value of the Dollar relative to the Yen falls.  After all I’m making my money or owning assets in dollars and will have to pay back my borrowed Yen with devalued dollars.

Practically speaking you can essentially borrow the Yen with a Forex account by shorting the Yen vs another currency in a currency pair.  For example buying USD/JPY. The problem is you are then suseptable to all the other things which affect these 2 currencies values.

[quote author=“mtdoc”]I’m sure there are better informed currency and banking experts that can give you a better answer than I but I’ll take a shot:

I thnk the way to look at is is not how can I borrow Yen but what will Yen interest rates do relative to the rates of the currency base of what I buy with the Yens I borrow.

If I borrow Yens and live in the US - buying stock or other things with US dollars, then the low interest rate on the Yens I borrow is irrelevant if the value of the Dollar relative to the Yen falls.  After all I’m making my money or owning assets in dollars and will have to pay back my borrowed Yen with devalued dollars.

Practically speaking you can essentially borrow the Yen with a Forex account by shorting the Yen vs another currency in a currency pair.  For example buying USD/JPY. The problem is you are then suseptable to all the other things which affect these 2 currencies values.

The points here are correct, except for the Forex/carryover trade, I doubt that a lot of people are pairing yen and USD.  On the otherside of the Pacific, people are pairing yen and AUS D and NZD.  Look at the interest rates on those, and then the rise in value over the past year.  You can also do Euros and Pounds and what have you.

I will bet a lot of hedgies are playing those games, thus if the interest rate in Yen goes up, the value of the pairings goes down quickly.  It is a domino effect.

[quote author=“oldmac”]

The points here are correct, except for the Forex/carryover trade, I doubt that a lot of people are pairing yen and USD.  On the otherside of the Pacific, people are pairing yen and AUS D and NZD.  Look at the interest rates on those, and then the rise in value over the past year.  You can also do Euros and Pounds and what have you.

I will bet a lot of hedgies are playing those games, thus if the interest rate in Yen goes up, the value of the pairings goes down quickly.  It is a domino effect.

Thanks!  I didn’t mean to imply that buying USD/JPY is a good forex interest play since as you point out other currencies have more favorable rates. My point was just that any pair that is long one currency and short JPY is essentially borrowing the Yen to buy the other currency. I don’t trade forex so maybe this is wrong?

[quote author=“mtdoc”]
Thanks!  I didn’t mean to imply that buying USD/JPY is a good forex interest play since as you point out other currencies have more favorable rates. My point was just that any pair that is long one currency and short JPY is essentially borrowing the Yen to buy the other currency. I don’t trade forex so maybe this is wrong?

I don’t know much about currency trading. If I am long USD and I’m an american resident, isn’t that the same as just having my money in the form of USD?

I know that interest rate on borrowing money is different than having your money in the form of a currency. IE: Japanese interest rates pertain to borrowing, whereas YEN is just the value of the currency at any given time.

If I am to finance a mortgage on a home, I borrow say $0.5m USD at 6%. I would like to borrow at 2%, which a japanese bank would do for their citizens, regardless of if my cash is yen/usd at the moment. (0.5m USD = 61.2m yen. Mizuho will loan you 61.2m yen @ 2%). Shorting or long a currency is just guessing where the value of the currency will go,  what if they both end up in the same place 5 years from now? The point is I’m borrowing $ during those five years, I want a rate as low as japan.

I understand that if I borrow in the form of YEN, and the yen changes against the USD, it could be a wash. But lets forget that concept for now, and imagine both currencies end up in the same place at the time of loan payback.

Thoughts?

Let’s imagine a world with only one currency.  If one can borrow money at 2% and lend it at 5% without risk (by buying treasuries), and if transaction costs are small, one would be advised to put on this trade as big as the lender allows.  (One must also be careful to match the maturities.)

Now imagine a diffent world where interest rates are all the same, but currencies fluctuate.  One might still borrow in one currency and lend in another if one expected the currencies to move is a favorable direction.  This is similar to what Forex traders on margin do every day.

The Yen Carry Trade combines these two worlds.  One borrows Yen at 2% and lends in Australia or New Zealand.  Someone who puts on this trade makes 3% or more and also profits or loses based upon what happens with the currencies.

A lot of people/institutions have put on this trade in the last couple of years.  Some of them have gone a step further and invested in equities instead of treasuries.  Now if the Yen starts to strenthen relative to the dollar, these equity investments are facing a big headwind.  Some investors might decide to sell.  Likewise if Japan raises interest rates, the costs rise, the profits fall and some investores might decide to sell.  To the extent that this selling occurs, it represents a threat to the equity markets.

Acquiring Yen is not really the issue; as mtdoc suggests exchanging dollars for Yen is pretty straightforward.  The issue is how to borrow yen at 2%.  Easy to do if you are in Japan.  Maybe it can also be done in suffiecient volume at any large Japanese Bank in New York or San Francisco.  I don’t know.

If you borrow (margin) on Forex, aren’t you paying interest for that money in your native currency, ie : USD (~5% or so)?

So yes, the point is for a moment forget about the currencies, but just speaking about borrowing cash (in any currency, since can be converted) at the rate Japanese banks are offering it. (~2%)

In particular, I’m curious about financing mortgages this way. Of course, over the years of a mortgage, you do run the risk of the currency changing value such that you owe/gain money at the time of repayment. But..2% sounds tasty.

[quote author=“superbaka”]
In particular, I’m curious about financing mortgages this way. Of course, over the years of a mortgage, you do run the risk of the currency changing value such that you owe/gain money at the time of repayment. But..2% sounds tasty.

I am not well enough informed to give you a definitive answer, but if you want a guess.  No way could you finance a mortgage this way.  Firstly this is not a 30-year interest rate.  And secondly the collateral is half way round the world.

[quote author=“capablanca”][quote author=“superbaka”]
In particular, I’m curious about financing mortgages this way. Of course, over the years of a mortgage, you do run the risk of the currency changing value such that you owe/gain money at the time of repayment. But..2% sounds tasty.

I am not well enough informed to give you a definitive answer, but if you want a guess.  No way could you finance a mortgage this way.  Firstly this is not a 30-year interest rate.  And secondly the collateral is half way round the world.

I just checked, and Mizuho is offering their 30 year mortgages at about 3.5%, 10 years at about 2.5%. I’m sure they will not finance homes outside of Japan, similar to how US banks will not finance properties outside of the US. But..as a starting point, made me curious if carry trade investors are doing this for their own investments, whos to say once couldn’t to finance property. Just would not be a mortgage proper.

[quote author=“superbaka”]I just checked, and Mizuho is offering their 30 year mortgages at about 3.5%, 10 years at about 2.5%. I’m sure they will not finance homes outside of Japan, similar to how US banks will not finance properties outside of the US. But..as a starting point, made me curious if carry trade investors are doing this for their own investments, whos to say once couldn’t to finance property. Just would not be a mortgage proper.

Foreign currency mortgages were available and had some popularity about 25 years ago in the UK. I am sure you can still do it. Euro was the most popular, having a lower interest rate.

There are a couple of problems. Firstly, the security asset (your house) now trades in a market in a different currency to the loan. Because of exchange rate swings, this makes the valuation riskier. Instead of borrowing up to, say 95% in your own currency, you may not be able to borrow more than 65%. Secondly, in addition to security, the lender wants to see an income stream out of which interest and repayments are made. This also is likely to be in the “wrong” currency, making it also somewhat less acceptable, reducing the income multiple you are able to borrow.

Once you are past these problems, they still affect you; the cost (in your own currency) of the repayments is now a variable part of your income, making planning a bit more difficult. And the net amount you will realise when you sell now fluctuates with the exchange rate, but amplified by the gearing.

These factors make this a technique for the wealthy, who are not borrowing the most they can to get the nicest house they can afford. Here’s a little table that will help you to see how brilliantly, or disastrously, a 30 year mortgage in a different currency might have worked out in the past:

http://fx.sauder.ubc.ca/etc/GBPpages.pdf

Thanks for the great info SG and others! Good to learn about these things.

I have many friends who worked a few years in a few forigen countries and got paid in that currency..and saw the effects on life planning having money saved up in a currency other than USD..it didn’t work out too well for them at times. (NZ kiwi).

Not sure if this is the thread for this but I found   THIS ARTICLE on Minyanville interesting.  It goes into the implications of possible scenarios impacting global liquidity including the Yen Carry Trade.

I don’t think the author is a seller of “doom and gloom” - just another worried bull who doesn’t want to be unprepared if global dynamics change. Personally - I’m just starting to learn more about macro-economics and find the topic fascinating. Don’t know if anyone else on AFB cares about this stuff or not. If so perhaps a Global Finance- Macroeconomics thread is called for?

And now i am having to same problems investing in Apple with UDS from Kiwi (NZD) and the USD sucks big tim, thank goodness Apple is doing so well to counteract the rising NZD

I would read such a thread regularly.  One of the strengths of AFB is our global membership.  And surely one of the major trends affecting Apple is the development of the global economy.

I don’t know if anyone is following the USD/JPY or currency markets, but the value of the yen relative to the Dollar has been following (or leading?) the markets closely lately. On Friday the Yen rallied hard relative to the dollar (so the USD/JPY pair fell hard - breaking support).  I suspect it will bounce back some but nevertheless, the unwinding of the carry trade continues.  I’m still not sure how much of an effect this is having on US Equities but if it is playing a role then a drop in USD interest rates will only make things worse.  The Fed really is stuck between a rock and a hard place.

Daily chart:

And 4hour:

[quote author=“mtdoc”] ... The Fed really is stuck between a rock and a hard place. ...

We know that.  We don’t know enough to nail which is the lesser evil.